Tax office reveals shock at PwC tax breaches after confidentiality breaches
Appearing in late night Senate estimates, the ATO said it had never witnessed anything like it when 44 companies restructured operations to make use of confidential tax advice.
PwC Australia’s use of confidential tax advice taken from government consultations to offer new tax minimisation schemes to clients was “the only time we’ve ever seen something like this sort of behaviour” the Australian Taxation Office has told Senate estimates.
Appearing late on Tuesday, the ATO said it was “horrified” after PwC’s former head of international tax Peter Collins used information taken from government consultations to design strategies to get around new tax laws.
The Tax Office said it was shocked by the sudden moves from “a handful” of companies to change their tax structure in Australia soon after the introduction of new Multinational Anti-Avoidance Laws in 2016
The ATO said almost 44 companies restructured to be compliant with the MAAL.
ATO commissioner of taxation Chris Jordan said almost a third of these companies were clients of PwC.
But the Tax Office said it was shocked by companies that moved quickly to adopt schemes to circumvent the new MAAL laws.
He said the ATO was “acutely focussed” on taxpayers who were attempting to implement different schemes to avoid their tax obligations.
The ATO battled Glencore, ABi InBev and JBS, over those firm’s moves to minimise tax and attempts to block the release of information through claims of privilege
ATO second commissioner Jeremy Hirschhorn said the tax office sought to prioritise tackling PwC’s actions including setting aside a team of 20 staff and taking an assistant commissioner “offline” to focus on “dealing with these matters”.
But the commissioner’s comments reveal that the Tax Office also put fellow firms KPMG, EY, and Deloitte on notice over concerns the firms were all seeking to circumvent the new laws. A tax alert notice sent to the firms at the time revealed the ATO said it was concerned “that some taxpayers are entering into artificial and contrived arrangements in attempts to avoid the application of the MAAL”.
The ATO said they had pursued multiple channels in an attempt to punish PwC over the firm’s breach of confidentiality agreements, after using information gained from consulting with the government over reforming Australia‘s tax laws.
But Mr Jordan said the ATO was prevented from informing the government, Treasury, or the Treasurer Josh Frydenberg of the breaches given the limitations of Australia‘s tax secrecy laws.
Mr Hirschhorn said the ATO looked initially referring the conduct to the AFP, given it presented the most serious potential punishment to PwC.
Mr Jordan said the ATO could have taken the matter to the Commonwealth Director of Public Prosecutions but ultimately did not.
He said when “that path became unfruitful” and the AFP indicated they were not interested in pursuing the matter, they explored further possibilities of slapping PwC with promoter penalties.
Promoter penalties would have seen the ATO penalise PwC for promoting its tax minimisation schemes.
Ultimately, the ATO took the matter to the Tax Practitioner’s Board, which hit Mr Collins, who breached confidentiality deeds, with a two year deregistration, shy of the potential five year maximum penalty on offer.
The TPB will appear before the Senate on Wednesday.
Treasury has moved to refer the matter to the AFP, after the TPB handed over a tranche of highly redacted emails to the Parliament showing PwC’s sharing of confidential information.
The AFP has confirmed it is now investigating PwC and Mr Collins, with warnings more figures involved in the breach of confidentiality agreements may face investigation.
Mr Jordan said the ATO “could not get the additional information the AFP wanted”, noting the police had found a swath of emails allegedly revealing a conspiracy among PwC’s partners to share confidential information were “circumstantial information”.
But the Australian Federal Police have pushed back on the Australian Taxation Office’s claims they turned down an attempt to open an investigation into professional services firm PwC.
In a statement the AFP said the ATO only “sought advice on whether there was sufficient information to make a formal referral”.
“The AFP assessed, based on the material that the ATO provided, was that there was insufficient information in the material, to support a formal referral,” a spokeswoman said.
“In consultation and agreement with the ATO, the matter was closed in 2019.”
Speaking on Tuesday Assistant Treasurer Stephen Jones said PwC’s abuse of trust is ‘the evil’ at the heart of the PwC scandal, warning “if you want us to be a consultative government, trust has to follow”.
“The abuse of that trust led to this scandal … It’s incumbent on those we consult with to ensure they keep that information and that trust to ensure they’re not using the information they gain through that consolation process, to weaponise or monetise the information they’ve gained,” he said.
He said the government would review outsourcing policies and attempt to enact legislative reform.
“First step in that, bring more work in-house. Second step in that, ensuring we have an ethics test in new government contracts.
“We have a bill before the government at the moment which would give the Tax Practitioner Board more powers, more independence and more resources.”
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